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China Trade Surplus Caps Biggest Quarter Since 2008

China, the world’s largest exporter, reported a trade surplus of 16.9 billion U.S. dollars in September, culminating the largest quarterly surplus since the financial crisis in 2008, the pressure of a stronger yuan.

Exports rose 25.1 percent from a year earlier and imports rose 24.1 percent, the customs office on its website today. The surplus compares with the estimate of $ 17,800,000,000 median of 24 economists surveyed by Bloomberg News. In August, the surplus was $ 20 billion.

European officials and U.S. argue that a stronger Chinese currency would help the global recovery to fuel the demand within the nation and reducing global economic imbalances. Yuan later rose to its highest level in more than two years this week on speculation that the government Prime Minister Wen Jiabao, will yield to foreign pressure.

“As the trade surplus remains high, China may allow the yuan to appreciate faster worsening trade tensions,” said Ting Lu, an economist at Hong Kong’s Bank of America-Merrill Lynch, before today’s launch . A slowdown in export growth year to year is due in part to “an abnormally high comparison base,” said Lu.

Imports rose to a record $ 128.1 billion U.S. dollars, which limits the surplus to the lowest in five months, while exports were U.S. $ 145 billion. The quarterly trade surplus over $ 65,600,000,000.

The export growth was lower than the median estimate in a Bloomberg News survey for a gain of 26 percent, compared with a jump of 34.4 percent in August. Import growth was lower than the median forecast of a rise of 25 percent after rising 35.2 percent in August.

World demand

“China has a surplus gradually narrow as the pulse of the nation’s sustained growth increases imports and foreign demand fading amid a slowdown in developed economies,” said Dariusz Kowalczyk, a Hong Kong economist and strategist at Credit Agricole before today’s launch. Kowalczyk said the smallest surplus as a percentage of GDP implies slower yuan gains.

The U.S. Senate take into account legislation would allow the duties imposed on Chinese imports because the country’s inability to allow higher foreign exchange earnings, according to Sen. Charles Schumer of New York.

The yuan has gained more than 2 percent since the government in June stopped pegging the currency to the dollar after almost two years. Non-deliverable forward yuan traded at 6.4514 per dollar of Hong Kong as of 8:25 am today, before the data were released, suggesting an increase of 3 percent in the next 12 months .

Currency devaluations

The debate over competitive devaluations dominated International Monetary Fund meeting last week. U.S. Treasury Secretary Timothy F. Geithner, renewed his call for China to let its currency rise and Luxembourg Prime Minister Jean-Claude Juncker, who chairs a panel of finance ministers from the euro zone, said the yuan is “most underrated.”

In contrast, the Chinese central bank governor, Zhou Xiaochuan said his country needs to avoid “shock therapy” of the excessive appreciation of the yuan and “very quick” profits probably would not end global economic imbalances. The appreciation of 20 percent to 40 percent that China would increase unemployment and cause social unrest, according to Premier Wen.

China’s economy has recovered from the global recession, with the benchmark Shanghai Composite Index yesterday to enter a so-called bull market, rising 20 percent since at least July. The measure remains bearish for the year 2010.

Investors and companies are paying a premium for registration of offshore yuan market in Hong Kong, taking advantage of more flexible restrictions to stock up on an appreciation of the currency at its fastest pace in five years.

“Be patient”

Hong Kong’s yuan closed at 6.5400 per dollar yesterday, up 2 percent higher than the spot rate of 6.6734 in Shanghai, according to data compiled by Bloomberg.

The world “has to be patient” in the pace of yuan gains, Michael Pettis, finance professor at Peking University, wrote in a commentary published by Bloomberg News yesterday.

“Ideally, China should spend the next eight to ten years slowly raising the yuan’s value, while increasing wages and interest rates and limiting credit growth,” said Pettis. “I can not do any of these things too fast without compromising growth and causing unemployment to rise.”

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